BOJ chief says lending moves like 'new car tires'

TOKYO--The Bank of Japan on Tuesday held off fresh monetary easing measures but said it would tweak a loans scheme to stimulate borrowing, a move that sent Tokyo shares surging.

Policymakers kept the existing massive easing program in place after a two-day meeting, while moving to fire up bank lending to firms and consumers, which BoJ chief Haruhiko Kuroda likened to slapping new tires on a car.

We have “significantly boosted the capacity of our engine — this is like we put on new tyres to make the most of that engine,” he told reporters.

All eyes were on Kuroda's post-meeting comments for signs of future policy moves, after weak Japanese growth data for the final quarter of 2013 worsened fears about the impact of an April sales tax rise.

Expanding the loans schemes was “nothing huge, but it is the first significant change of policy since the bank started on its massive easing cycle last April,” said Chris Tedder, research analyst at Forex.com in Sydney.

Analysts widely expect the BoJ to expand its asset-buying plan later this year to counter any slowdown from the tax increase.

That would likely weigh on the yen, a plus for Japanese exporters, as the U.S. Federal Reserve rolls back its own stimulus program.

The new data showed Japan's economy expanded by 1.6 percent over last year, but it slowed to 0.3 percent in the October-December quarter, presenting a major challenge for Prime Minister Shinzo Abe and his bid to reverse almost two decades of deflation.

“These data reinforced investor expectations that the Bank of Japan will need to step up its (easing) program at some point,” National Australia Bank said.

Kuroda unveiled the vast asset-buying scheme — which aims to boost the money supply and, in turn, stoke growth — as part of the broader plan by Abe to reinvigorate the world's third-largest economy and eradicate years of falling prices, which have held back consumer spending and business investment.

Recent data showed consumer prices logged their first annual rise for five years in 2013.

But rising prices have largely been driven up by higher fuel bills after the Fukushima atomic crisis, not by surging demand for everyday goods which power the economy as a whole — although there has been an uptick in spending before the tax rise.

David Beim, a finance professor at New York's Columbia University, cast doubt on whether the BoJ's attempts to pump money into the financial system through reserve-rich Japanese banks was having much of an impact.

“What is in theory supposed to happen is that, as the central bank expands its balance sheet, the commercial banks expand theirs, thereby expanding the money supply ... which stimulates the real economy,” he said in an email to AFP.

“But when commercial banks already have massive excess reserves, this does not happen.”

In January Kuroda said he was still confident the bank's two-percent inflation target would be reached sometime next year — despite growing scepticism among analysts and even some BoJ board members.

The sales tax hike — to 8.0 percent from 5.0 percent — is seen as crucial to bringing down Japan's eye-watering national debt, but it has also raised fears that it will derail Tokyo's attempt to kickstart growth.

The BoJ on Monday announced it would double the amount of funds available to commercial banks under a pair of loan schemes, saying it hoped to “further promote financial institutions' actions as well as stimulate firms' and households' demand for credit.”

Among other measures was an extension of the timeline for a programme aimed at promoting development in parts of the country hammered by the quake-tsunami disaster almost three years ago.